VZCZCXYZ0006
RR RUEHWEB

DE RUEHMU #0562/01 1561950
ZNR UUUUU ZZH
R 051950Z JUN 09
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 4213
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS MANAGUA 000562 
 
SENSITIVE 
SIPDIS 
 
DEPT PASS USTR 
DEPT FOR EEB/CIP/BA TIM FENTON 
DEPT PASS FCC TOBERT TANNER 
DEPT PASS DOC/ITA/OTEC ANDREW BENNETT 
 
E.O. 12958: N/A 
TAGS: ECPS ECON EINV ETRD TINT NU
SUBJECT: NICARAGUA TELECOM SECTOR: MARKET OPEN, BUT 
COMPETITION 'SLIM' 
 
REF: A. MANAGUA 02474 
     ¶B. MANAGUA 01343 
 
¶1. (SBU) Summary:  The head of Nicaragua's telecommunications 
regulator, TELCOR (Instituto Nicaraguense de 
Telecomunicaciones y Correos), announced in April 2009 that 
it would begin consultations to reform Nicaragua's telecom 
legislation, known as Law 200.  As currently drafted, Law 200 
fails to foster competitive investment in the sector, as 
envisioned by CAFTA-DR.  In fixed-line telephony, the former 
government-operated telecommunications company Enitel, now 
owned by Mexican billionaire Carlos Slim's America Movil, has 
100% of the market and operates a de-facto monopoly.  The 
wireless sector is dominated by a duopoly, with America 
Movil's Claro competing against Telefonica's Movistar for 
market share.  TELCOR has drafted a revised telecom law, but 
the National Assembly's Commission on Infrastructure and 
Public Services is working on its own version, which would 
create a new regulatory body whose members are chosen by the 
Assembly rather than the President.  Until a new law is 
passed, media companies in Nicaragua continue to operate in 
an uncertain environment.  End Summary. 
 
¶2. (SBU) Nicaragua's complementary agenda to improve the 
business climate under CAFTA-DR includes legislation to 
reform the telecommunications sector.  There has been no 
progress on this score since the free trade agreement was 
signed in April 2006.  The national telecom regulator, 
TELCOR, and the National Assembly's Commission on 
Infrastructure and Public Services are currently drafting 
revisions to the country's telecom legislation.  Threatening 
to derail proposed reform is the issue of whether legislation 
will protect or endanger existing media licenses.  Radio and 
television stations, often highly critical of the Ortega 
Administration, fear that the reform process under discussion 
presents an opportunity to limit or deny them licenses (see 
paragraphs 10-11). 
 
Still Waiting On New Telecommunications Legislation 
--------------------------------------------- ------ 
 
¶3. (U) TELCOR Executive President Orlando Castillo announced 
in April 2009 that the Government of Nicaragua (GON) would 
begin consultations to reform Nicaragua's "General Law of 
Telecommunications and Postal Services," Law 200.  Castillo 
said he would deliver an outline of the proposed reforms to 
the Executive Branch by the end of June.  The National 
Assembly's Commission for Infrastructure and Public Services 
announced the same week that it is working on its own draft 
of a new telecommunications law.  Media reports indicate that 
the National Assembly's draft will include a plan to create a 
new regulatory institution, the Superintendent of 
Telecommunications and Postal Services (SITEL), whose members 
would be chosen by the Assembly rather than appointed by the 
President.  A 2005 attempt by the National Assembly to create 
a Superintendent of Public Services (SISEP) with authority 
over telecommunications failed after a confrontation between 
the National Assembly and President Bolanos ended in a 
stalemate (Ref A). 
 
¶4. (U) As part of its Rural Telecommunications Project for 
Nicaragua, the World Bank provided $350,000 in technical 
assistance to TELCOR to help draft a new regulatory framework 
for the sector.  World Bank Project Director Eloy Vidal told 
us that a draft law developed by TELCOR and the World Bank 
has been completed, and that he is cautiously optimistic it 
will be approved.  The Nicaraguan National Assembly, 
meanwhile, received technical assistance from the United 
Nations Development Program (UNDP) to revise Law 200.  The 
primary difference between the two draft laws is reportedly 
the National Assembly's plan to create a new regulatory 
institution with authority over TELCOR. 
 
¶5. (U) Law 200, as currently drafted, allows for privately 
owned and operated telecommunications companies, but falls 
short of fostering competitive investment in landline 
telephony as envisioned by CAFTA-DR.  One TELCOR executive 
described the 1995 law as "obsolete" and incapable of 
addressing technological advances.  For example, while TELCOR 
regulates interconnection charges, the former 
government-operated telecommunications company Enitel, now 
owned by Mexican billionaire Carlos Slim's America Movil (the 
dominant cellular telephone company in Nicaragua) still 
controls switching for all cellular services and owns the 
local loop ("the last mile").  When TELCOR issued regulations 
in 2006 that mandated unbundling the local loop, consistent 
with Article 13.4 of CAFTA-DR's Chapter 13 on 
telecommunications, Enitel refused to unbundle the loop. 
This created a strong disincentive for potential investors in 
the sector, effectively preventing liberalization of the 
market for telephony.  (Note: the local loop refers to the 
physical wire between a telephone exchange and a customer's 
premises; the "unbundling" of that loop allows competing 
service providers to rent the existing infrastructure and 
access residential customers.) 
 
The Shift Toward Cellular 
------------------------- 
 
¶6. (U) Having the second lowest access to fixed-line 
telephony in Latin America on a per capita basis, Nicaragua 
leapfrogged into mobile communications during the last 
decade.  Today, Nicaragua's mobile telephone penetration rate 
is greater than 50%, surpassing that of Honduras, Peru, 
Haiti, and Cuba.  Cell phones now exceed the number of fixed 
lines by more than ten to one.  Since 2004, the mobile market 
has been growing at an annual rate of 60%.  Most recent 
investment in the sector has focused on expanding service to 
the poorer social strata throughout the country.  The 
wireless sector is dominated by a duopoly between America 
Movil's Claro and Telefonica's Movistar services.  Claro 
leads with a 70% market share to Movistar's 30%.  Internet 
penetration has tripled since 2000, to 2.7% of the population 
in 2008.  About one-sixth of these are broadband users.  Both 
companies deploy the broadband mobile telecommunications 
platform standard known as UMTS/HSDPA (Universal Mobile 
Telecommunications System/High-Speed Downlink Packet Access), 
allowing them to introduce 3G wireless service in 2008. 
High-end wireless service and broadband networks can be found 
in urban areas.  While investment in wireless continues, 
investment in landline service is minimal. 
 
The Story of Deregulation 
------------------------- 
 
¶7. (U) Passed in 1995 under President Violeta Chamorro, Laws 
200 and 210 opened the state-run telecommunications sector to 
private investment and to the eventual privatization of 
Enitel, the state-owned telephone company.  The government 
sold a 40% stake in Enitel in 2001 to an international 
consortium, which later became Megatel.  The Government of 
Nicaragua (GON) sold the remaining stake to America Movil in 
December 2003.  In 2004, America Movil bought Megatel's share 
to become the sole owner of Enitel, despite opposition from 
telecom regulator TELCOR.  Enitel now operates a de-facto 
monopoly as the country's only landline operator and the 
dominant cellular provider. 
 
¶8. (SBU) TELCOR tried to liberalize the telecom industry at 
the end of 2004, but Enitel successfully appealed, delaying 
deregulation until 2005, when Enitel's exclusive right to 
provide landline telephone services expired under Law 210. 
Since 2005, any company has been free to bid on a license to 
provide landline services through a process even TELCOR 
itself describes as lengthy and cumbersome. 
 
¶9. (U) In 2006, consistent with the country's obligations 
under CAFTA-DR, TELCOR sought to amend the country's 
telecommunications regulations.  TELCOR wanted to force the 
unbundling of the local loop so that companies interested in 
investing in the landline sector would have access to the 
existing network elements.  Enitel filed an injunction 
against the GON, charging discrimination and arguing that the 
new regulations were impermissible under Law 200, the 
governing telecommunications legislation.  The Nicaraguan 
Supreme Court agreed with Enitel, sending the government back 
to the drawing board.  Since 2007, the Ortega Administration 
has decided to forego developing new regulations in favor of 
a complete sectoral reform. 
 
A Political Battle Brewing Over Media Licensing 
--------------------------------------------- -- 
 
¶10. (SBU) TELCOR also issues licenses for radio and 
television frequencies.  Here, political battle lines are 
being drawn.  TELCOR's President, Orlando Castillo, is the 
former Finance Director for Channel 4, a television station 
owned by President Ortega and managed by his son.  TELCOR 
headquarters prominently displays FSLN (Sandinista National 
Liberation Front) propaganda.  Moreover, TELCOR performs a 
public relations service to the President, his wife, and the 
FSLN by financing and staging Ortega's many town hall 
meetings, broadcast in their entirety by Channel 4.  The FSLN 
has sharply criticized independent media in Nicaragua, and 
took the extreme measure in 2008 of paying protesters to 
occupy Managua's traffic circles to denounce what it 
perceived as unfair treatment by the media (Ref B).  Protests 
by FSLN and government-supported Citizen Power Councils 
(CPC's) in front of media outlets were also common in 2008. 
 
¶11. (SBU) The reform of Law 200 promises to include the 
renewal of existing media licenses, an issue which has become 
politically charged.  Media outlets in Nicaragua have 
operated since 2008 without knowing when their licenses will 
expire.  The National Assembly temporarily extended the 
licenses, pending the passage of legislation to replace Law 
200, after a furor erupted over TELCOR's failure to reply to 
requests for license extensions from several independent 
media outlets.  TELCOR's inaction, as the expiration date of 
the licenses grew near, was interpreted by voices opposed to 
the governing FSLN as a plan to let the licenses expire and 
not renew them.  In 2007, opposition candidate Eduardo 
Montealegre had introduced a bill to the National Assembly to 
extend media licenses by 10 years, but the FSLN blocked it. 
 
¶12. (SBU) Comment:  While technically open to investment, 
Nicaragua's telecom sector lacks the regulatory environment 
that would foster a free and competitive market.  To fully 
comply with the spirit of CAFTA-DR, the National Assembly 
needs to pass an improved law on telecommunications.  While 
the government has suggested that such legislation will move 
quickly, we believe that the National Assembly is technically 
unprepared to reform telecommunication legislation at this 
time.  The issue of renewing radio and television licenses is 
likely to make any reform effort lengthy and highly 
controversial. 
CALLAHAN